Why Rishi Sunak should put an end to England's stamp duty holiday romance

Reports last week that the stamp duty holiday in England and Northern Ireland is to be extended were met with unsurprisingly little consternation, surprisingly. I mean that I wasn’t surprised by the lack of consternation which, on reflection, was surprising. Can you be surprised on reflection, or just by a reflection because you haven’t had a haircut since October? I think you can. It was a gradual, creeping surprise that stole through me gingerly, like a presentiment of diarrhoea.

People don’t like stamp duty, because it makes the surreal sums involved in procuring shelter significantly more eye-watering. Still, isn’t it a bit nuts, when you think about it, extending the stamp duty holiday? The country isn’t made of money. Except it sort of is made of money because the property here is worth so much. Particularly in the south-east, but in Britain generally, houses cost too much. And, thanks to the stamp duty holiday, UK prices rose last year by 8.5%. That’s while most of the economy was somewhere on a scale from lightly to totally screwed.

It seems like a lot, 8.5%. The Bank of England base rate is currently 0.1% and inflation is 0.7%. So other costs aren’t going up anywhere near as fast, and the rate at which money is lent to enable people to buy these houses with skyrocketing prices is being effortfully suppressed by the central bank.

Presumably the point of the stamp duty holiday, other than being an excuse to use the otherwise now superfluous word “holiday”, was to prevent stagnation in the property market from damaging the wider economy. Well, at 8.5% growth, in a year of unprecedented virally induced recession, I’d say stagnation has been resoundingly averted. That’s about as stagnant as a stretch of rapids, except these turbulent, swirling waters are flowing upwards.

In fact, hasn’t the chancellor’s scheme rather overshot the mark? Price rises at this level will themselves damage the economy by making it even more massively too expensive to buy somewhere to live than it is already. You’d imagine Rishi Sunak was now thinking: “Oh dear, maybe the housing sector didn’t need that big discount after all. Maybe those billions would have been better spent increasing hospital capacity before the second wave, or giving those free-school-meal kids a second slice of bread.” But no, it seems he’s thinking: “We need to extend that stamp duty holiday. We wouldn’t want house price growth to dip below 10 times the rate of inflation.”

As a nation, I think we’re weird about house prices. Too many of us have fallen in love with the colossal sums that our dwellings are theoretically worth. Even if we’re trying to pay off huge mortgages, the thought that we’d have to take out even huger ones if we were to buy our houses now can be incredibly comforting. On paper, we’ve got all this equity which, if we ever converted it into non-house, could buy us as much holidaying, partying, restaurant-dining and car-buying as at a plutocrat’s minor birthday.

As the co-owner of a house in London, I enjoy this feeling too. But it doesn’t actually make my home any nicer. I live in the same way as the people who bought the same house decades ago for, in real terms, a tenth and, in monetary terms, a 100th of the price. What do we all actually get for the fact that our national housing stock has an absurd notional value? I, like all loyal Britons, swell with pride that our property market has become the repository of choice for Russian oligarchs’ ill-gotten wealth – but how much is worth sacrificing for that lovely thought?

After all, sacrifices that go well beyond the current reduction in stamp duty revenue are involved in sustaining this situation. Astronomical house prices cause huge problems: people have to borrow enormous amounts to get on the housing ladder, meaning interest rates have to stay low to avoid a pandemic of insolvency, which means savers needn’t bother.

London, where the prices are daftest, is gradually excluding anyone who isn’t rich. That’s shit if you’re not rich but, in the long-term, it’s not great if you are. Most jobs that make cities work are done by non-millionaires, and always have been in every non-hyperinflationary society. Still, it’s nice to think you’re sitting on a theoretical infinity of visits to Pizza Express, even though all the nearby branches have closed because the people who used to work there can’t afford to live nearer than a two-hour drive away.

What this country needs is a house price crash. But it would be too depressing to too many people (including me) and whatever government it happened under would be toast. Still, a bit of plateauing, some light stagnation so that, in time, housing costs ceased to dwarf all others, would surely be a positive step.

The Centre for Policy Studies disagrees. It wants the stamp duty holiday to become permanent – making it a stamp duty move-to-Spain-and-open-a-bar (a nice repurposing of that phrase now that, since Brexit, Britons are no longer allowed to move to Spain and open bars). It says the holiday has been “a very effective form of stimulus for the construction industry” and making it permanent will address the national housing shortage.

So we should cut tax to keep driving the prices up so that it will stimulate investment in housebuilding to reduce the shortage and so drive the prices down? Excuse my hilariousness, but isn’t that going round the houses a bit? Can’t we just keep the tax and spend the money building houses? Then prices won’t go up, plus there’ll be more houses! Except it would involve a government actually building houses, which the Centre for Policy Studies, as a Thatcherite thinktank, probably puts in the same circle of hell as public service broadcasting.

So maybe Sunak should spend the stamp duty revenue helping sectors of the economy that haven’t grown by 8.5% in the past year? Not because it would be nice to have restaurants and pubs and cinemas and museums and actual physical shops on high streets in towns where it’s pleasant to live. Why would we care about that? We’re not French! No, just because it’s fiscally prudent. And it might be good for house prices.